Category: Public Finance

Larry Summers: Treasury Borrowing Has Gotten “Bizarre”

Mary Pat Campbell

Link: https://www.thewealthadvisor.com/article/larry-summers-treasury-borrowing-has-gotten-bizarre

Excerpt:

Former U.S. Treasury Secretary Lawrence Summers said the Federal Reserve’s massive bond-buying program is resulting in a “bizarre” situation in which the government’s funding structure is overly focused on the short-term.

Under its quantitative easing program, the Fed purchases longer-term Treasuries and the money it creates to buy them ends up in the accounts that banks hold with the central bank, in the form of overnight reserves.

These reserves earn a rate of interest that’s linked to changeable overnight benchmarks — currently 0.15% per year. That, in effect is the rate the government, through the Fed, is paying to borrow this money.

At the same time, any payments the government makes on Treasury bonds to the Fed is ultimately a flow from one part of the government to another and, arguably, cancels itself out in the end. So the upshot is the government owes, in real terms, less longer-term fixed-rate debt and more shorter-term floating-rate debt.

Author(s): Bloomberg

Publication Date: 15 August 2021

Publication Site: The Wealth Advisor

Claims that Illinois pension reform would fail at federal level just aren’t true: The case of Arizona – Wirepoints

Mary Pat Campbell
Claims that Illinois pension reform would fail at federal level just aren’t true: The case of Arizona – Wirepoints

Excerpt:

Perhaps one of the best examples for successful reform is Arizona’s recent effort, where the state amended its constitution and passed pension reforms to, as Arizona Gov. Doug Ducey described it, set its public safety “pension system on a path to financial stability while improving the way it serves our brave cops and firefighters.”

No federal challenges to Arizona’s reforms have been made – which is part of a longstanding pattern nationally. Dozens of states over the past several decades have reformed their public pension systems as problems became apparent over the years. None has been sued successfully under the U.S. Constitution – whether under the contract clause or any other provision – in all that time.

Author(s): Ted Dabrowski and John Klingner

Publication Date: 10 August 2021

Publication Site: Wirepoints

DiNapoli: Chatham Police Chief Sentenced for Pension Double-Dipping

Mary Pat Campbell

Link: https://www.osc.state.ny.us/press/releases/2021/07/dinapoli-chatham-police-chief-sentenced-pension-double-dipping

Excerpt:

Former Village of Chatham Chief of Police Peter Volkmann was sentenced to pay $92,829 in restitution and perform 200 hours of community service today for defrauding the New York State pension system by concealing his unlawful post-retirement public income and for stealing from the village through sham requests for reimbursement. His fraud was discovered during a joint investigation by State Comptroller Thomas P. DiNapoli, Columbia County District Attorney Paul Czajka, and the New York State Police.

…..

Volkmann pleaded guilty in February to grand larceny in the fourth degree for circumventing New York state’s post-retirement income restrictions and cheating the New York State and Local Retirement System out of $74,222. Volkmann hid public-source income from 19 municipalities and school districts in excess of the statutory limit by funneling the earnings through a private business, PF Volkmann & Associates. He also pled to official misconduct, a misdemeanor, for stealing $18,607 from the Village of Chatham by falsifying mileage vouchers and other reimbursements to increase his income. 

Volkmann, 57, of Stuyvesant, served as a Chief of Police for the town of Stockport until 2016. He was also the Chief of Police for the Village of Chatham since the fall of 2013 and he served as unpaid Commissioner of the Hudson Police Department from January 2020, until this investigation became public.

Author(s): Thomas DiNapoli

Publication Date: 19 July 2021

Publication Site: NY State Comptroller

DiNapoli: Local Sales Taxes Jump 49.2 Percent in Second Quarter

Mary Pat Campbell

Link: https://www.osc.state.ny.us/press/releases/2021/07/dinapoli-local-sales-taxes-jump-49-point-2-percent-second-quarter

Graphic:

Excerpt:

Sales tax revenue for local governments in New York state rose by 49.2% in the second quarter (April to June 2021) compared to the same period last year, a dramatic increase from last year’s weak collections during the first wave of the COVID-19 pandemic, according to State Comptroller Thomas P. DiNapoli. Sales tax collections during this period grew by just over $1.6 billion and even surpassed collections reported during the second quarter of 2019, before the onset of the pandemic.

…..

The size of the increase largely reflects extremely weak collections in the April to June period of 2020. However, even compared to pre-pandemic collections for the same period in 2019, statewide collections in 2021 were up 8.7% or $396 million. Every region outside of New York City experienced two-year growth over 18%. The Mid-Hudson and North Country regions both reported increases of more than 29%.

Author(s): Thomas DiNapoli

Publication Date: 23 July 2021

Publication Site: NY State Comptroller

California Lawmakers Unanimously Approve the State’s First Basic Income Program

Mary Pat Campbell

Link: https://reason.com/2021/07/16/california-lawmakers-unanimously-approve-the-states-first-basic-income-program/

Excerpt:

On Thursday, the California legislature unanimously passed a budget trailer bill that will create the state’s first guaranteed income pilot program.

Under the lawmakers’ plan, the state’s Department of Social Services (DSS) will get $35 million to dole out in grants to cities and counties that will then set up local basic income schemes. Grants will be prioritized for programs focusing on “pregnant individuals” and young adults 21 or older who’ve aged out of extended foster care programs.

State Sen. Dave Cortese (D–San Jose) said in a press release Thursday that participants of these pilot programs could end up receiving monthly payments of as much as $1,000 each.

Author(s): CHRISTIAN BRITSCHGI

Publication Date: 16 July 2021

Publication Site: Reason

PBGC Multiemployer Pension Bailout – The Weeds

Mary Pat Campbell
PBGC Multiemployer Pension Bailout – The Weeds

Graphic:

Excerpt:

The Pension Benefit Guaranty Corporation (PBGC) on July 9, 2021 announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

What struck me:

…..

It is expected that over 100 plans that would have otherwise become insolvent during the next 15 years will instead forestall insolvency as a direct result of receiving SFA. Section 9704 of ARP amends section 4005 of ERISA to establish an eighth fund for SFA from which PBGC will provide SFA to multiemployer plans under the program created by the addition of section 4262 of ERISA. The eighth fund will be credited with amounts from time to time as the Secretary of the Treasury, in conjunction with the Director of PBGC, determines appropriate, from the general fund of the Treasury Department. Transfers from the general fund to the eighth fund cannot occur after September 30, 2030. (page 6)

Unlike the financial assistance provided under section 4261 of ERISA, which is in the form of a loan and provided in periodic payments, a plan receiving SFA under section 4262 has no obligation to repay SFA, and PBGC must pay SFA in the form of a single, lump sum payment. (page 7)

Author(s): John Bury

Publication Date: 10 July 2021

Publication Site: burypensions

PBGC to Provide Special Financial Assistance to Troubled Multiemployer Plans

Mary Pat Campbell

Link: https://www.pbgc.gov/news/press/releases/pr21-05

Released rule pdf: https://www.pbgc.gov/sites/default/files/sfa/4262-ifr-final-posted.pdf

Excerpt:

WASHINGTON, D.C. — The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.  

“The American Rescue Plan provides funding to severely underfunded pension plans that will ensure that over three million of America’s workers, retirees, and their families receive the pension benefits they earned through many years of hard work,” said PBGC Director Gordon Hartogensis. “These benefits are critical to the economic security of so many retirees and their families.” 

The American Rescue Plan (ARP) Act of 2021 (P.L. 117-2) — a historic law passed by Congress and signed by President Biden on March 11, 2021 — contains provisions to provide an estimated $94 billion in assistance to eligible plans that are severely underfunded. Additionally, it assists plans by providing funds to reinstate previously suspended benefits. ARP also addresses the solvency of PBGC’s Multiemployer Insurance Program, which was projected to become insolvent in 2026.  

The interim final rule sets forth what information a plan is required to file to demonstrate eligibility for SFA and the formula to determine the amount of SFA that PBGC will pay to an eligible plan. ARP authorizes PBGC to prioritize SFA applications of plans in specified groups, and the interim final rule identifies the priority order in which such plans are permitted to apply. The interim final rule also outlines a processing system, which will accommodate the filing and review of many applications in a limited amount of time. In addition, it specifies permissible investments for SFA funds and establishes certain restrictions and conditions on plans that receive SFA. 

The interim final rule is posted on PBGC’s website today, July 9, 2021. The rule is also on public inspection today at FederalRegister.gov and is scheduled for publication in the Federal Register on July 12, 2021. PBGC has included a 30-day public comment period in this rulemaking from the date of publication in the Federal Register. All interested parties may submit their comments, suggestions, and views on the rule’s provisions here: reg.comments@pbgc.gov or https://www.regulations.gov. 

Additional information, including Frequently Asked Questions, is available at PBGC.gov/arp. 

Author(s): PBGC press release

Publication Date: 9 July 2021

Publication Site: PBGC

PBGC Rules on Multiemployer Pension Bailout

Mary Pat Campbell
PBGC Rules on Multiemployer Pension Bailout

Excerpt:

The Pension Benefit Guaranty Corporation (PBGC) today announced an interim final rule implementing a new Special Financial Assistance (SFA) Program for financially troubled multiemployer defined benefit pension plans.

Pertinent excerpts coming over the weekend but, for now, it looks like the bailout number moved from $86 billion to $94 billion per the PBGC press release:

Author(s): John Bury

Publication Date: 9 July 2021

Publication Site: burypensions

Update On The Multiemployer Pension Plan Bailout: New Regulations Finally Unveiled

Mary Pat Campbell

Link: https://www.forbes.com/sites/ebauer/2021/07/11/update-on-the-multiemployer-pension-plan-bailout-new-regulations-finally-unveiled/?sh=29d66f215bb2

Excerpt:

The PBGC’s decisions here are not what organizations such as the NCCMP would have liked, although, clearly, it is the PBGC’s job to interpret the law, not to try to fix a poorly-written law.

At the same time, no multiemployer pension plan is worse off with this legislation than without it, even if it isn’t as generous as they would have liked. And nothing prohibits those plans from boosting contributions and using additional contributions to fund future accruals — which would mean that pension plans which express their contributions as fixed dollar amounts, rather than a percentage of pay, will be better positioned to provide for existing employees as well as retirees. What’s more, the calculation of future contributions is based on a one-time open group projection, without being revised from year to year, so that, in principle, if more workers join a plan, the plan will be better off. (Of course, if the projection is too optimistic about the number of future workers, the opposite will be true.)

But, of course, this is $86 billion that could have been spent for other needs, or not spent at all. And, however much advocates profess that they still hope for a more comprehensive revision of funding rules for multiemployer pensions, the poorly-conceived nature of this bailout makes it less, rather than more, likely that both sides of the aisle will come together to repair multiemployer pensions and prevent future bailouts.

Author(s): Elizabeth Bauer

Publication Date: 11 July 2021

Publication Site: Forbes

Searching for Supply-Side Effects of The Tax Cuts and Jobs Act

Mary Pat Campbell

Link: https://www.taxpolicycenter.org/taxvox/searching-supply-side-effects-tax-cuts-and-jobs-act

Excerpt:

Did it work? In a new paper with my Tax Policy Center colleague Claire Haldeman, we conclude that, consistent with these goals, TCJA reduced marginal effective tax rates (METRs) on new investment and reduced the differences in METRs across asset types, financing methods, and organizational forms.

But it had little impact on business investment through 2019 (where we stopped the analysis, to avoid confounding TCJA effects with those of the COVID-related shutdowns that ensued). Investment growth increased after 2017, but several factors suggest that this was not a reaction to the TCJA’s changes in effective tax rates.

Author(s): William G. Gale

Publication Date: 6 July 2021

Publication Site: TaxVox at Tax Policy Center

State Pass-Through Entity Taxes Let Some Residents Avoid the SALT Cap at No Cost to The States

Mary Pat Campbell

Link: https://www.taxpolicycenter.org/taxvox/state-pass-through-entity-taxes-let-some-residents-avoid-salt-cap-no-cost-states

Graphic:

Excerpt:

But PTE taxes create inequities based on type of income. For example, because these states now favor pass-through income over wages, a partner in a law firm can be effectively exempt from the SALT cap while an executive assistant or associate in the same firm remains subject to the deduction limitation. A doctor who is an employee of a corporation is barred from fully deducting state and local income taxes while a partner in a medical practice making the same income is exempt from the federal cap for these taxes.  

Because the rules differ across states, businesses need to consider where partners live and where business income is generated. For example, non-resident partners might not benefit from the credits in their home state. Like New York, some states of residence allow credits against the taxes these partners owe from other states. But that isn’t always the case.

Keep in mind that these PTE taxes may be just a temporary fix. Congress may consider changes to the SALT cap in coming legislation. And the cap, along with all other individual tax changes in the TCJA, is scheduled to expire at the end of 2025.

Author(s): Kim S. Rueben

Publication Date: 24 June 2021

Publication Site: TaxVox at Tax Policy Center

How States Are Letting Small Businesses Avoid The SALT Cap On Their Tax Returns

Mary Pat Campbell

Link: https://www.forbes.com/sites/lizfarmer/2021/07/01/how-states-are-letting-small-businesses-avoid-the-salt-cap-on-their-tax-returns/?sh=7ef5a29127c5

Graphic:

Excerpt:

Colorado recently became the 14th state to enact the new workaround, which allows (or in Connecticut’s case, requires) pass-through businesses to pay state income taxes at the entity level rather than on their personal income tax returns. For small businesses like partnerships, declaring that income as a business instead of passing it through to their individual tax returns means the state taxes paid on that business income don’t count toward their SALT cap.

The new mechanism is called a pass-through entity (PTE) tax, which is exempt from the $10,000 cap on the state and local tax (SALT) deduction that was part of President Trump’s 2017 tax reform. For business owners in high property tax states like New Jersey and Connecticut, it’s a critical change because it allows those taxpayers to deduct more of their local taxes from their other personal income.

Author(s): Liz Farmer

Publication Date: 1 July 2021

Publication Site: Forbes